Manufacturing Renaissance and the role for Industrial Policy?
Professor David Bailey Aston Business School
Slide 2
Today Why manufacturing is important Possibilities for
reindustrialisation or Renaissance? Reshoring in UK and US role for
regions? UK Automotive Case Lessons for + role of wider industrial
policy? WWWfor Europe FP7 programme
Slide 3
3 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. Decline of Manufacturing
Slide 4
4 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. Share of manufacturing in GDP (at current prices)
Slide 5
5 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. But new recognition Manufacturing important
Slide 6
6 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. 80% exports 80% R&D spend 1in 4 private sector jobs
in industry. Many highly skilled Every Manufacturing job 2 other
jobs (auto: 8) Drives productivity gains Europe: resilience (trade
surplus) But lost 3.5m jobs since 2008. share man decline and EU
productivity growth poor Manufacturing Matters
Slide 7
2 Manufacturing Renaissance? Possibility for
Reindustrialisation ? By focusing on high value added activities By
focusing on manufacturing & services (servitisation)
Repositioning on the GVC Personalisation of offering Birth of new
distributed manufacturing (additive manufacturing, web, consumer
design, localised manufacturing (+ energy independence)
Slide 8
3 Reshoring Decades of offshoring and outsourcing Recently:
risks of GVCs exposed rethink (Gereffi) reshoring possibilities?
Work on German firms reshoring by Kinkel: quality, flexibility,
transportation costs, rising labour costs 5 year lag: 1 in 6
offshored over 2004-6 chose to backshore 2007-9: for 3 offshoring,
1 backshoring
Slide 9
Academic Perspectives Colliers and Coronet Global (2013)
Near-shoring a relocation closer to home country but not
necessarily a repatriation Best shoring - firms location choices
driven by strategic choices that maximise competitiveness without
predefined scale considerations
Slide 10
Perspectives 1 costs Gray et al (2013): offshoring was a
bandwagon effect, miscalculated actual cost advantage of offshoring
Ellram et al (2013): reshoring a location decision where total
costs considered Wu and Zhang (2013) cost consideration, but also
more volatile demand and more segmented markets
Slide 11
Perspectives 2 - GVCs Gereffi (2013): OEMs dealing with far
fewer tier 1 firms modularisation, and control of supply chain Mena
et al (2013): balance of power in GVCs McIvor (2013): ownership /
nature of relationships Christopher and Peck (2013): minimising
vulnerabilities of supply chain
Slide 12
US and UK Policy debates US: BCG (2013): 54% of US firms
surveyed considering repatriation; 2.5m to 5m
manufacturing-associated jobs could be created by 2020 Active set
of policies under Obama UK: rebalancing debate, fractured supply
chains, servitisation of manufacturing Manufacturing that comes
back wont be the same
Slide 13
Recent UK Trends
Slide 14
SurveyHeadline FindingsKey DriversBarriers to further
repatriation Business Birmingham, You Gov, 2013 (150) One-third of
manufacturers expect to source more from UK Rising costs overseas;
Quality; Simpler logistics; Skilled Workforce; Supply chain;
R&D/Innovation Energy costs; Regulations; Lack of skilled
labour; Access to Finance Business Insider, SGH Martineau, Bailey
& De Propris, 2013 (80) 16% of manufacturing firms engaged in
reshoring Transport Costs; Quality; Supply Chain resilience;
Exchange rate shifts; Rising wages overseas; Need for rapid
turnaround; Provision of service with manufacturing Labour costs;
Access to finance; Availability of skilled workers; Energy and Raw
Material Costs Manufacturing Advisory Service, 2103 (500) 15% of
manufacturing firms engaged in reshoring Cost savings; Quality;
Lead Times; Delivery Performance Higher UK labour & production
costs; Access to finance; Skills gaps EEF, 2013 (271) 16% of
manufacturing firms engaged in reshoring Greater certainty over
lead times; Shorter delivery times; Minimising supply chain
disruption Availability of skilled workers; Energy costs; Planning
regulations PwC, 2014Reshoring had potential to raise output by 6bn
to 12bn and create 100,000- 200,000 jobs by mid 2020s. Declining
Wage Gaps; Technology Changes; Security of Supply Chain;
Rising/Volatile Transport Costs; Quality; Responding to Consumers
Quickly; Cost of managing operations overseas n/a
Slide 15
SurveyHeadline FindingsKey DriversBarriers to further
repatriation Business Birmingham, You Gov, 2013 (150) One-third of
manufacturers expect to source more from UK Rising costs overseas;
Quality; Simpler logistics; Skilled Workforce; Supply chain;
R&D/Innovation Energy costs; Regulations; Lack of skilled
labour; Access to Finance Business Insider, SGH Martineau, Bailey
& De Propris, 2013 (80) 16% of manufacturing firms engaged in
reshoring Transport Costs; Quality; Supply Chain resilience;
Exchange rate shifts; Rising wages overseas; Need for rapid
turnaround; Provision of service with manufacturing Labour costs;
Access to finance; Availability of skilled workers; Energy and Raw
Material Costs Manufacturing Advisory Service, 2103 (500) 15% of
manufacturing firms engaged in reshoring Cost savings; Quality;
Lead Times; Delivery Performance Higher UK labour & production
costs; Access to finance; Skills gaps EEF, 2013 (271) 16% of
manufacturing firms engaged in reshoring Greater certainty over
lead times; Shorter delivery times; Minimising supply chain
disruption Availability of skilled workers; Energy costs; Planning
regulations PwC, 2014Reshoring had potential to raise output by 6bn
to 12bn and create 100,000- 200,000 jobs by mid 2020s. Declining
Wage Gaps; Technology Changes; Security of Supply Chain;
Rising/Volatile Transport Costs; Quality; Responding to Consumers
Quickly; Cost of managing operations overseas n/a
Slide 16
SurveyHeadline FindingsKey DriversBarriers to further
repatriation Business Birmingham, You Gov, 2013 (150) One-third of
manufacturers expect to source more from UK Rising costs overseas;
Quality; Simpler logistics; Skilled Workforce; Supply chain;
R&D/Innovation Energy costs; Regulations; Lack of skilled
labour; Access to Finance Business Insider, SGH Martineau, Bailey
& De Propris, 2013 (80) 16% of manufacturing firms engaged in
reshoring Transport Costs; Quality; Supply Chain resilience;
Exchange rate shifts; Rising wages overseas; Need for rapid
turnaround; Provision of service with manufacturing Labour costs;
Access to finance; Availability of skilled workers; Energy and Raw
Material Costs Manufacturing Advisory Service, 2103 (500) 15% of
manufacturing firms engaged in reshoring Cost savings; Quality;
Lead Times; Delivery Performance Higher UK labour & production
costs; Access to finance; Skills gaps EEF, 2013 (271) 16% of
manufacturing firms engaged in reshoring Greater certainty over
lead times; Shorter delivery times; Minimising supply chain
disruption Availability of skilled workers; Energy costs; Planning
regulations PwC, 2014Reshoring had potential to raise output by 6bn
to 12bn and create 100,000- 200,000 jobs by mid 2020s. Declining
Wage Gaps; Technology Changes; Security of Supply Chain;
Rising/Volatile Transport Costs; Quality; Responding to Consumers
Quickly; Cost of managing operations overseas n/a
Slide 17
SurveyHeadline FindingsKey DriversBarriers to further
repatriation Business Birmingham, You Gov, 2013 (150) One-third of
manufacturers expect to source more from UK Rising costs overseas;
Quality; Simpler logistics; Skilled Workforce; Supply chain;
R&D/Innovation Energy costs; Regulations; Lack of skilled
labour; Access to Finance Business Insider, SGH Martineau, Bailey
& De Propris, 2013 (80) 16% of manufacturing firms engaged in
reshoring Transport Costs; Quality; Supply Chain resilience;
Exchange rate shifts; Rising wages overseas; Need for rapid
turnaround; Provision of service with manufacturing Labour costs;
Access to finance; Availability of skilled workers; Energy and Raw
Material Costs Manufacturing Advisory Service, 2103 (500) 15% of
manufacturing firms engaged in reshoring Cost savings; Quality;
Lead Times; Delivery Performance Higher UK labour & production
costs; Access to finance; Skills gaps EEF, 2013 (271) 16% of
manufacturing firms engaged in reshoring Greater certainty over
lead times; Shorter delivery times; Minimising supply chain
disruption Availability of skilled workers; Energy costs; Planning
regulations PwC, 2014Reshoring had potential to raise output by 6bn
to 12bn and create 100,000- 200,000 jobs by mid 2020s. Declining
Wage Gaps; Technology Changes; Security of Supply Chain;
Rising/Volatile Transport Costs; Quality; Responding to Consumers
Quickly; Cost of managing operations overseas n/a
Slide 18
SurveyHeadline FindingsKey DriversBarriers to further
repatriation Business Birmingham, You Gov, 2013 (150) One-third of
manufacturers expect to source more from UK Rising costs overseas;
Quality; Simpler logistics; Skilled Workforce; Supply chain;
R&D/Innovation Energy costs; Regulations; Lack of skilled
labour; Access to Finance Business Insider, SGH Martineau, Bailey
& De Propris, 2013 (80) 16% of manufacturing firms engaged in
reshoring Transport Costs; Quality; Supply Chain resilience;
Exchange rate shifts; Rising wages overseas; Need for rapid
turnaround; Provision of service with manufacturing Labour costs;
Access to finance; Availability of skilled workers; Energy and Raw
Material Costs Manufacturing Advisory Service, 2103 (500) 15% of
manufacturing firms engaged in reshoring Cost savings; Quality;
Lead Times; Delivery Performance Higher UK labour & production
costs; Access to finance; Skills gaps EEF, 2013 (271) 16% of
manufacturing firms engaged in reshoring Greater certainty over
lead times; Shorter delivery times; Minimising supply chain
disruption Availability of skilled workers; Energy costs; Planning
regulations PwC, 2014Reshoring had potential to raise output by 6bn
to 12bn and create 100,000- 200,000 jobs by mid 2020s. Declining
Wage Gaps; Technology Changes; Security of Supply Chain;
Rising/Volatile Transport Costs; Quality; Responding to Consumers
Quickly; Cost of managing operations overseas n/a
Slide 19
US: regions count on reshoring Reshoring is a possibility; it
is not guaranteed. US experience: General Electric in Louisville
and the Google Moto X venture in Fort Worth. Reshoring plays out on
a region by region basis whether reshoring benefits a region
depends on the local availability of skills, innovation capacity,
the supply chain base, support services and regional institutional
thickness broader role of clusters (Kettel)
Slide 20
4. The Auto Case: Changing Landscape. Changing patterns of
production Changing Technologies and Technology / Regional Policies
Changing Labour Needs Longer term: Changing Demand Patterns
Slide 21
UK car production (SMMT, 2012)
Slide 22
Recent UK output trends Recent peak: 1999: just under 2 million
units 2009: -31%, down to < 1 million 2010: +27%, back to 1.27
million. 2011: 1.4 million 2012: 1.5 million 2013: c1.6million SMMT
projection: 4 years time could be as high as 2.2 million? But only
50/50 chance this happen? KMPG: forecast 1.9m by 2016.
Slide 23
Other success indicators Around 8bn invested in UK auto sector
in last 3 years Some plants have gone to 24/7 working with 3 shifts
(Halewood, Sunderland) others (JLR) working very flexibly Q1 2012
trade surplus. 2012 may see first trade surplus since mid 1970s
(trade deficit in 2011 of 1bn and in 2007 of 7.5bn). 55% of exports
go beyond the eurozone UK engine production c2.5 million in 2011
+JLR Plant utilisation rate in UK c.74% (KPMG) UKs auto sector:
lowest labour cost of any west European country (c.23 an hour)
while having the second highest productivity in Europe after
Germany (KPMG)
Slide 24
What underpins this recent success? What assembly is left is
genuinely competitive The shift up market exchange rate
depreciation over 2008-9 really helped re exports. But being
unwound? Emerging economy success middle class + excellent skilled
and flexible workforce unions key part of the solution NOT a
problem Industrial policy has actually helped, up to a point
Slide 25
What about the supply chain? Reshoring/onshoring opportunity:
depreciation of sterling, plus rise in transport costs, plus rising
wage costs in far east also make it possible to repatriate some
components sourcing to UK Plus supply chain resilience issue
(Japanese earthquake/tsunami) Automotive Council, + Work of SMMT in
matching OEMs and component suppliers Big issue for smaller firms
access to finance, RGF / LEPs bid to address this, and Advanced
Manufacturing Supply Chain Initiative BUT small scale Key question:
how to make most of JLR engine plant investment for supply chain in
UK? And help local suppliers win more work? help with winning
orders, access to finance, skills, support for exporters.
Slide 26
5 Recent Industrial Policy in the Automotive Industry
Automotive Council e.g. sourcing road map 2011 Skills Loan
Guarantees ( access EIB funds) RGF support JLR, Nissan, GM, supply
chain, AMSCI (245m) TSB + EPSRC investment into research OLEV MAS
Automotive Research Campus at WMG AIO Scrappage scheme (2009-10)
Local smart specialisation approaches: NVN open innovation approach
Plugging funding gaps?
Slide 27
The automotive industry and the automotive councils good work
creates a model that we are trying to replicate in some of our
other industries and sectors. (Vince Cable, 2012)
Slide 28
What type of IP? Not picking winners rather sees Industrial
Policy as a process of discovery (Rodrick) + linked to smart
specialisation
Slide 29
What more can be done -Auto Tooling up finance for parts of
certain supply chains Skills Support for exporters Attracting tier
1s? scope? Segments of supply chain. Innovation Energy costs:
compensate in other ways? Remaining in Europe
Slide 30
4. Broader Industrial Policy targeted at manufacturing?
Innovation Capital allowances Focus corporation tax cuts for
manufacturing firms that increase output, and/or take on workers
(CRESC) Better R&D tax credits Better support for exporters
Auto long-term loan fund? (Relocalisation / Repatriation of supply
chain) (see SMMT, 2012) Lessons from Germany: Part-time wage
subsidies when shocks hit? Takeovers RDAs
Slide 31
Summary Reshoring in UK/EU manufacturing is happening, but on
modest scale: limits and barriers Some recent successes in the case
of the UK's industrial policy re the automotive industry, and from
which wider lessons can perhaps be drawn But need for a longer
term, proactive and holistic pro-manufacturing industrial
policy
Slide 32
32 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. Subsidies for (f)ailing industries Tax exception for
energy intensive firms Creating and supporting national champions
Preference for large firms (often semi-public) Emphasis on energy
sector, transport, basic goods Decline of manufacturing in GDP to
10 % (UK, GR) Extreme UK case: only industrial policy was to
support financial services (with consequences). Old industrial
policy ..
Slide 33
33 | Event, Date This project has received funding from the
European Unions Seventh Framework Programme for research,
technological development and demonstration under grant agreement
No. 290647. Possibility for Reindustrialisation ? For example by
focusing on high value added/service (manu-services), repositioning
on GVC, personalisation of offering, and birth of new distributed
manufacturing Emphasis on: Sustainability and long term interests
of society Support of market forces, competition by new firms Based
on innovation, skills, clean energy Systemic - not in conflict with
sustainability Clean technology as source of exports. .. New
industrial policy?
Slide 34
Thanks for listening. Comments, Questions welcome.
[email protected]
